subject: Gaining Control Of Your Finances Is The First Step In Repairing Your Credit [print this page] Typically, credit repair consists of two parts, repairing the damage to your credit reports (removing bad credit) and enhancing your credit profile (adding good credit). But for some people there is a third preliminary step that must be addressed because without doing so, no amount of work on the other two will be enough to effectively and permanently restore their credit.
This third step is to get your finances under control and stop additional negative items from showing up on your credit reports. Much like a doctor will never be able to make you 100% healthy if you keep doing the things that are hurting your body, no credit repair effort will be able to completely repair your credit reports if things like late payments, collections accounts, and other delinquencies continue being added to your credit reports.
What it means to get your finances under control will differ depending on the individual. For some, it may be as simple as taking appropriate steps to pay their bills on time. As elementary as it may sound, many of the late payments that end up on people's credit reports are the result of carelessness or forgetfulness and have nothing to do with the person's ability to pay their bills on time. For these people, getting their finances under control may be as easy as setting up automatic payments or adding reminders to their calendar.
When delinquencies are the result of an inability to make payments, more involved processes may be necessary. For some, this could mean taking the time to prioritize their spending, create a budget, and sticking to it. It may be a sacrifice, but living outside of their means has gotten them into credit trouble in the first place and will stand in the way of improving the situation. By sticking to a budget, they will put themselves in a position to be able to clean up their credit which can result in significant savings on credit cards and other loans down the road which will ultimately result in them having more money in their bank accounts.
Others won't be able to budget away their financial troubles. Sometimes it is the case that expenses surpass income. This is often times seen in cases of job loss, divorce, and serious illnesses, and for many is an unavoidable consequence of bad fortune. When this happens, a more drastic intervention is required.
If your finances are approaching the breaking point but you have managed to maintain a good credit score, consolidating your debts may be a good solution. Especially if you have built up equity, you may be able to get approved for a low interest loan such as a home equity loan that you can use to pay off higher interest loans such as credit cards or payday loans. A word of warning when doing so: if you cannot pay off the new loan, don't use it as a stop gap measure. Failing to repay a home equity loan can result in you losing your home.
If a debt consolidation loan is not an option, you can consider debt settlement or in a worst case scenario, bankruptcy. Neither option is desirable and both will destroy your credit, but by the time these options become viable, your credit score will be poor and getting worse. These options are last resorts designed to stop the free-fall and while the damage they will do to your credit score is extreme, if they are truly necessary in order for you to be able to regain control of your finances, they wll be a necessary step on the road to financial stability and credit worthiness.
If your financial situation is such that new negative items are being added to your credit reports, don't waste your time on credit repair. At best, the gains you see will be temporary. Make sure you are managing your finances in a responsible manner and that you are truly credit worthy before trying to repair your credit because even if you are able to convince someone to extend you credit when you are not ready, it will only exacerbate the problem and lead you toward a bigger fall in the future.
